Pension crisis hits home: Springfield

Since 2009, taxpayer contributions to police and fire pensions in Springfield have increased by 44 percent.

Illinois’ $111 billion unfunded pension liability for its state-run pension funds has earned national media attention. But Illinois is home to another pension crisis that all too often flies under the radar. Rapidly rising pension costs are also suffocating hundreds of municipalities across the state.

There are nearly 650 downstate municipal pension funds for police and fire departments in Illinois. Compared to the state-run pension plans, many of these funds are faring just as poorly. Often times, they’re even worse off. The Commission on Government Forecasting and Accountability, or COGFA, recently rereleased a detailed analysis of police and fire pension systems in Illinois municipalities, including the city of Springfield, the state capital and home to 117,000 residents.

Whether they realize it or not, taxpayers in Springfield have a lot of experience with the impact of rising pension costs. Taxpayers contributed $5.7 million to the police pension fund and $6.8 million to the fire fund in 2009. Since then, total taxpayer contributions have increased by 44 percent.

Despite making those increased pension payments, the city’s unfunded pension debt for its police and fire pension funds has increased by 43 percent since 2009 – to $227 million from $159 million. The increased unfunded liability is largely due to missed investment returns, underfunding and salary increases, according to COGFA.

The Springfield police pension fund has just 54 cents of every dollar it needs in the bank today to meet future pension payments. The Springfield fire fund, just 46 cents.

Pension funds are often criticized, and rightly so, for using rosy investment assumptions to make their funding look better on paper. In stark contrast with many cities in Illinois who are making financially responsible decisions and ratcheting down the assumed rate of return, Springfield increased its assumed rate of return in 2009 to 7.5 percent from 7 percent. The city has not met its investment return target once in the last 5 years.

Rising pension payments will continue to strain the Springfield budget and its taxpayers. Taxpayers will have to contribute more than $5 dollars into the police and fire pension systems each year for every $1 dollar police and fire employees contribute.

Local officials across Illinois are struggling to keep up with their quickly growing pension costs. Some communities are hiking taxes and fees to help balance their budgets while others are cutting services.

The problem is local governments like Springfield have their hands tied when it comes to pension reform. The Illinois state legislature sets municipal pension laws – retirement ages, cost-of-living adjustments and benefit formulas – with no regard to whether the local budget or taxpayers can afford them.

It’s time to give local governments more control over their own retirement systems. Local governments should have the option to restructure their local retirement systems in a way that best meets the needs of their budget, taxpayers and public employees. Local pension control would help communities like Springfield prevent quickly growing pension costs from consuming an ever-growing chunk of local resources.